Pub chains power up their kitchens as food drives profits

Pub chains are destined to be big spenders on kitchen equipment in 2016 as the emphasis on food sales increases. FEJ takes a look at how several of the largest players are gearing up for growth in 2016 and evaluates what’s high on their strategic agendas.

It’s been a long time coming — eight years in fact — but pub group Admiral Taverns has finally recorded absolute growth in turnover, operating profit and EBITDA, an achievement that duly prompted it to hail the “turnaround” of its business. Annual figures show that turnover is up 2% to £78m and operating profits have climbed 82% to £25m, while EBITDA per pub has increased by 9%.

It’s a solid foundation for a firm that has been working hard to provide its licensees with the resources they need to turn their pubs into perennial profit centres. One of the most significant steps has been the introduction of a programme for pubs wanting to develop a food offering in their premises.

As part of the ‘Build a Menu’ initiative, it provided licensees with the opportunity to choose from more than 160 dishes in a central food bank, with simple instructions on how to prepare, cook, store and control portion sizes. It also gives advice as to where to buy the products. Before starting the initiative, a member of the food development team visits the licensee to discuss what they would like from their pub’s food offer and provide advice on food preparation, cooking methods, choosing the right suppliers and food trends.

The last six years have marked a transformational period for Admiral Taverns and following a restructuring of the businesses in 2009 the group’s management team was strengthened and a new strategy outlined to develop and maintain a sustainable, well-invested estate of freehold pubs.

Our vision is to operate a smaller number of brands and formats across the enlarged estate, creating a platform for long-term growth and value creation”

“Over recent years we have tripled the amount of money invested in our estate and this evidences not only our commitment to our licensees in supporting them to develop their businesses but also to ensuring the long-term quality of our estate,” says the company’s CEO Kevin Georgel.

The disposal programme that Admiral Taverns put in place as part of its turnaround strategy five years ago is now drawing to a “natural conclusion” and it anticipates that it will be completed in the new financial year. Once concluded, it will have an estate of 858 core pubs, representing a 12% increase in its core estate since the previous year end.

Over at pub operator Greene King, meanwhile, changes are also afoot. It has revealed that it plans to halve the number of brands it operates, although it is still too early to say what impact — if any — it will have on catering equipment specification. Following the £800m acquisition of rival Spirit Pub Company last year, the chain, which oversees more than 3,000 sites, has been reviewing its combined brand portfolio. Currently, it operates around 20 brands and formats, including Hungry Horse, Old English Inns, Farmhouse Inns and Chef & Brewer, but it anticipates slashing this figure by half in the future.

In order to select the growth brands and formats to invest in, the company has been assessing the consumer relevance of each brand, the long-term opportunities to grow and expand, the financial performance, and the proximity to other sites within the combined group. “Our vision is to operate a smaller number of brands and formats across the enlarged estate, creating a platform for long-term growth and value creation,” says CEO Rooney Anand.

“We acquired a strong portfolio of brands and formats with Spirit — one that would have been very difficult to replicate organically — and optimising the brands from both businesses will provide an exciting growth opportunity over the next few years.”

Greene King said there was significant potential profit upside from investment in between 300 and 400 sites to reposition them into what it calls its “growth brands” over the next three years. These growth brands include Hungry Horse, Flaming Grill, Farmhouse Inns, Chef & Brewer and Metropolitan. Anand promised that Greene King would continue to develop a strong Local Pubs estate, its hotels and Loch Fyne Seafood & Grill.

The portfolio of growth brands and formats will cover a wide range of consumer occasions. Hungry Horse and Flaming Grill will cater for different customer occasions within the value segment, Farmhouse Inns is its carvery offer spanning both value and mainstream occasions, Chef & Brewer will serve as its drive mainstream brand, while it will use Metropolitan to grow its presence in the premium end of the sector.

Mitchells & Butlers, another company with a major pub offering, is also entering 2016 in bullish mood. Although a full-year sales increase of almost 7% to £2.1 billion was dented slightly by the disclosure that like-for-like turnover grew less than 1%, M&B says it is pleased with “strong” earnings growth of 9.5% and pre-tax profits up £3m to £126m.

The company’s capital expenditure totalled £162m last year — the same as the previous 12 months — as it opened 14 new sites and completed 51 conversions. The integration of the Orchid pub business remains on track, with 41 conversions performing well and the closure of the Orchid head office completed.

“The market remains highly competitive but I have identified our key priorities to realise that potential,” insists chief executive, Phil Urban. “We will build a more balanced business, instil a more commercial culture and increase the pace of execution and innovation.”

Kitchens cash in on all-day dining trend

Greene King’s kitchens are operating on full capacity as it has seen the rewards of providing an all-day food offer. Having recognised the growing demand for eating out throughout the day, the company has relaunched its value-orientated breakfast offer in Farmhouse Inns, introduced a breakfast offer in Old English Inns and extended breakfast service hours in Hungry Horse over the last six months.

These initiatives have led to it posting 4.5% like-for-like sales growth in breakfast in the Greene King estate and a 9.9% increase in sales before 5pm driven by increases in both food and drink sales. A similar focus in the Spirit estate included the launch of a premium sandwich menu and the continued evolution of the snack menu in Chef & Brewer.